Chapter 12The Purchasing Process

TRUE/FALSE
1. As used in the purchasing process chapter, the term goods and services refers to raw materials,
merchandise, supplies, fixed assets, or intangible assets.
ANS: F
2. The purchasing manager usually performs major buying activities as well as performing the
administrative duties of running a department.
ANS: T
3. The purchasing supervisor is responsible for receiving incoming goods, signing the bill of lading
presented by the carrier, reporting the receipt of goods, and making prompt transfer of goods to the
appropriate warehouse or department.
ANS: F
4. In many organizations professional buyers do the actual buying.
ANS: T
5. Goal congruence exists when each individual managers' goals are achieved.
ANS: F
6. The connections between an organization, including the flow of information, materials, and services
from suppliers of merchandise and raw materials through to the organizations customers, are its
supply chain.
ANS: T
7. When the data on the inventory record indicate a need to replenish the stock, the inventory system
prepares a purchase order.
ANS: F
8. The purchase requisition is sent from the inventory control department to the purchasing department.
ANS: T
9. Supply chain management (SCM) is the combination of processes and procedures used to ensure the
delivery of goods and services to customers at the lowest cost while providing the highest value to the
customers.
ANS: T
10. With continuous replenishment (CRP) a vendor obtains a buyers current sales, demand, and inventory
data in real time and replenishes the buyers inventory.

ANS: T
11. Notifications that a PO has been prepared and sent to the vendor are sent to the receiving department,
the accounts receivable process, and the department or process that requested the purchase.
ANS: F
12. Collaborative processes across the supply chain using a set of processes and technology models is
called Collaborative Planning, Forecasting, and Replenishment (CPFR).
ANS: T
13. A retailer could misread a demand signal doubling its normal order, and the wholesaler could respond
and also double its order resulting in four times the retail order. This is an example of the bullwhip
effect.
ANS: T
14. According to the context diagram for the purchasing process, when a purchase order is sent to the
purchaser, the vendor responds by sending the goods along with a packing slip.
ANS: F
15. Reorder point (ROP) analysis reorders inventory when the item reaches a certain inventory level that
was determined in advance based on the item's purchase rate.
ANS: F
16. EOQ is a technique of analyzing all incremental costs associated with acquiring and carrying particular
items of inventory.
ANS: T
17. ABC analysis is a technique for ranking inventory items according to their relative importance.
ANS: T
18. In selecting a vendor, a buyer may need to obtain competitive bids by means of a document called a
purchase order.
ANS: F
19. A receiving report is an external request for the purchase of goods or services from a vendor.
ANS: F
20. After the vendor has been selected, the buyer prepares a purchase order.
ANS: T
21. Inventory personnel use the vendor master data to select an appropriate vendor.

ANS: F
22. It is not uncommon for the copy of the PO available for the receiving department to be a carbon copy,
meaning that certain data is blanked out.
ANS: F
23. The business document that accompanies the purchased inventory from the vendor, identifies the
shipment and triggers the inventory receiving process is the vendor packing slip.
ANS: T
24. The document used to record merchandise receipts is called a purchasing report.
ANS: F
25. Whereas a receiving report normally indicates that goods have been received, some organizations use
an acceptance report to acknowledge formally the satisfactory completion of a service contract.
ANS: T
26. The inventory master data contains a record of each vendor that is approved for use by the
organization.
ANS: F
27. The purchase order master data is a compilation of open POs and includes the status of each item on
order.
ANS: T
28. The warehouse master data contains a record of each inventory item which is stocked in the warehouse
and/or regularly ordered from a vendor.
ANS: F
29. The purchase receipts data is an event data store with each record reflecting a receipt of goods and
services.
ANS: T
30. A paperless system would eliminate documents and forms as the medium for conducting business
transactions.
ANS: T
31. The warehouse number is the primary key for the relational table for inventory.
ANS: F
32. The item number is the primary key for relational table for vendors.

ANS: F
33. RFID tags are computer chips with an antenna that contains information about the object to which it is
attached.
ANS: T
34. An employee has a conflict of interest when he (she) has a financial interest (direct of indirect) in a
company with which the employer does business.
ANS: T
35. Digital signatures allows the vendor to determine that the sender of the message has the authority to
send it and thus prevents an unauthorized purchase.
ANS: T
MULTIPLE CHOICE
1. The purchasing process is part of the ____ process for a merchandising firm.
a. order-to-cash
b. purchase-to-pay
c. conversion
d. general ledger/financial reporting
ANS: B
2. The typical purchasing process would capture and record data related to the day-to-day operations of
all of the following except:
a. shipping
b. buyers
c. receiving
d. purchasing
ANS: A
3. As used in the text, the term services specifically refers to:
a. items having a physical existence and value
b. work performed by employees
c. work performed by outside vendors
d. products normally held for resale
ANS: C
4. Which of the following is least likely to report directly to the vice president of logistics?
a. controller
b. receiving department
c. purchasing department
d. warehouse
ANS: A
5. Which of the following managers is most likely to report to the controller?
a. accounts payable department manager

b. cashier
c. purchasing department manager
d. receiving department manager
ANS: A
6. The typical information flows in a purchasing process might include all of the following except:
a. a purchase requisition is sent from inventory control to the purchasing department
b. the purchase order is sent to the vendor
c. goods or services are received from the vendor
d. a copy of a receiving report is sent to the cashier
ANS: D
7. The purchasing manager is evaluated by his/her supervisors based on purchasing inventory at the
lowest price. Consequently, the purchasing manager knowingly orders materials only based on price.
This has resulted in the purchase of inferior quality materials. This improved the purchasing managers
performance evaluation, but had a negative impact on production due to an increase in scrapped
materials. This situation is an example of a failure of:
a. goal congruence
b. management perquisites
c. management by exception
d. control theory
ANS: A
8. Assume that one of the process bubbles in the Purchasing Process - Level 0 Diagram is called "order
goods and services." The data flow between order goods and services and the vendor is called a
a. purchase order
b. receiving report
c. stock notice
d. inventory notice
ANS: A
9. Which of the following process bubbles would you not expect to see in the Purchasing Process - Level
0 Diagram?
a. make payment
b. order goods and services
c. receive goods and services
d. determine requirements
ANS: A
10. Which of the following data stores would you least expect to see in the Purchasing Process - Level 0
Diagram?
a. inventory master data
b. vendor master data
c. purchase order master data
d. cash receipts data
ANS: D
11. In a purchasing process, once requirements are determined and a vendor selected, the next step is:
a. the purchase requisition
b. the purchase order

c. receive goods and services

d. a vendor acknowledgment
ANS: B
12. The purchasing process--receive goods and services--normally would be triggered by the data flow:
a. purchase order
b. vendor acknowledgment
c. vendor packing slip
d. purchase requisition
ANS: C
13. At the time that a purchasing process performs the process of ordering goods and services, the process
is likely to interact with all of the following data stores except the:
a. receiving report data
b. vendor master data
c. inventory master data
d. purchase order master data
ANS: A
14. At the time that a purchasing process places an order for goods or services, which of the following is
typically updated?
a. accounts payable master data
b. receiving report data
c. purchase order data
d. general ledger data
ANS: C
15. In the Purchasing Process - Level 0 Diagram, a data flow called vendor packing slip would most
likely be sent by the vendor to which of the following processes?
a. order goods and services
b. receive goods and services
c. determine requirements
d. none of the above
ANS: B
16. In the Purchasing Process - Level 0 Diagram, a data flow called "inventory purchase requisition" most
likely would be sent by the inventory management process to which of the following processes?
a. order goods and services
b. receive goods and services
c. determine requirements
d. none of the above
ANS: C

17. Outputs of a purchasing process normally might include all of the following except:
a. purchase order
b. a purchase order inventory notification sent to the inventory system
c. receiving report
d. vendor invoice
ANS: D
18. Who usually authorizes a purchase requisition?
a. the supervisor of the requisitioning department
b. the purchasing manager
c. a purchasing agent
d. a customer
ANS: A
19. Which of the following techniques has the reorder point based on each inventory items sales rate?
a. cyclical reordering
b. reorder point (ROP) analysis
c. ABC analysis
d. EOQ models
ANS: B
20. Which of the following is a technique for ranking items in a group based on the output of the items?
a. cyclical reordering
b. reorder point analysis
c. EOQ models
d. ABC analysis
ANS: D
21. Which of the following techniques analyzes all incremental costs associated with acquiring and
carrying particular items of inventory?
a. cyclical reordering
b. reorder point analysis
c. EOQ models
d. ABC analysis
ANS: C
22. Inventory carrying costs include all of the following except:
a. clerical cost of ordering goods
b. opportunity cost of investment funds
c. insurance costs
d. obsolescence and deterioration
ANS: A
23. Which of the following is not a cost element as part of the inventory carrying costs?
a. insurance costs
b. property taxes
c. purchase order preparation costs
d. storage costs
ANS: C

24. When large or expensive items are purchased, most organizations make use of a procedure to obtain
competitive bids from multiple vendors. The document used to obtain competitive bids is called a(n):
a. purchase requisition
b. purchase order
c. request for quotation
d. authorization to bid
ANS: C
25. The document one business sends to another business that identifies the goods or services to be
purchased is a:
a. request for proposal
b. purchase requisition
c. purchase order
d. disbursement voucher
ANS: C
26. In a purchasing process, receiving goods, but not a vendor invoice, from a supplier typically results in
an update to all of the following data stores except the:
a. inventory master data
b. vendor master data
c. accounts payable master data
d. purchase order master data
ANS: C
27. Purchase orders are sent to:
a. customers
b. vendors
c. carriers
d. managers
ANS: B
28. Which of the following most likely would be "blinded" on a copy of the purchase order sent to the
receiving department?
a. inventory descriptions
b. vendor identification
c. quantities
d. freight terms
ANS: C
29. A control that can ensure that receiving clerks are not influenced by quantity information while
actually counting incoming goods is to:
a. send a "blind" copy of the purchase order to receiving
b. establish a "tickler" file for completed purchase orders
c. send copies of a receiving report to accounts payable
d. establishing "blanket orders" in purchasing
ANS: A

30. A "blind" copy of the purchase order should be sent to receiving so that:
a. receiving can anticipate the receipt of the goods from the vendor
b. receiving clerks will know the value of what is on order
c. partial shipments can be monitored
d. receiving clerks will be forced to actually count the goods that are received
ANS: D
31. The vendor packing slip triggers which process?
a. receive goods and services
b. order goods and services
c. determine requirements
d. none of the above
ANS: A
32. In the process of preparing a receiving report, the receiving department should perform all of the
following tasks except:
a. inspect and approve quality
b. count the quantity received
c. compare the completed receiving report to the information stored in the purchase order
master data
d. compare the vendor's packing slip to a copy of the purchase requisition
ANS: D
33. In a purchasing process, the receiving report may be accessed by all of the following except:
a. accounts payable department
b. cashier
c. warehouse
d. requesting department
ANS: B
34. A receiving report is to goods what a(n) ____ is to services.
a. purchase requisition
b. purchase order
c. acceptance report
d. vendor packing slip
ANS: C
35. Data about vendor compliance with the terms of the purchase order normally would be included in the:
a. accounts payable master data
b. vendor master data
c. inventory master data
d. warehouse master data
ANS: B

36. The ____ is a compilation of open purchase orders and includes the status of each item on order.
a. accounts payable master data
b. vendor master data
c. vouchers payable master data
d. purchase order master data
ANS: D
37. In an entity-relationship (E-R) diagram for the purchasing process, you would expect that the word
generate would appear in the diamond showing the relationship between:
a. VENDOR and PURCHASE_ORDERS
b. VENDOR and EMPLOYEES
c. VENDOR and PURCHASE_REQUISITIONS
d. PURCHASE_REQUISITIONS and PURCHASE_ORDERS
ANS: D
38. In an entity-relationship (E-R) diagram for the purchasing process, you would expect that the words
yield would appear in the diamond showing the relationship between:
a. PURCHASE_REQUISITIONS and INVENTORY_RECEIPT
b. PURCHASE_ORDERS and PURCHASE_RECEIPTS
c. VENDOR and PURCHASE_ORDERS
d. VENDOR and PURCHASE_REQUISITIONS
ANS: B
39. In a database containing (among others) five relations--VENDORS, PURCHASE_REQUISITIONS,
PURCHASE_ORDERS, PURCHASE_RECEIPTS, INVENTORY, and EMPLOYEES--you would
expect that the attribute Vend_No (vendor number) would be the primary key in the ____ relation.
a. VENDORS
b. PURCHASE_ORDERS
c. PURCHASE_RECEIPTS
d. EMPLOYEES
ANS: A
40. Issues related to the purchasing function, such as kickbacks, bribes, conflicts of interest, and the like
are often addressed by ____.
a. job descriptions
b. corporate codes of conduct
c. computer security modules
d. vendor master files
ANS: B
41. Which of the following items is not a control plan of the purchasing process?
a. minimize inventory carrying costs
b. written approvals
c. compare vendors for prices, terms, quality, product availability
d. requisition confirmation to originating department
ANS: A

42. The resources for which the purchasing process wants to ensure security for which of the following:
a. purchase order master data
b. inventory
c. both a and b
d. neither a or b
ANS: C
43. The control plan compare vendors for favorable prices, terms, quality and product availability is
directed primarily at which of the following control goals?
a. ensure effectiveness of operations
b. input validity
c. input accuracy
d. input completeness
ANS: A
44. Supply chain management
a. helps to ensure delivery of goods and services to customers of the highest value but
increases costs.
b. helps to ensure delivery of goods and services to customers of the highest value at the
lowest costs.
c. helps to ensure delivery of goods and services to customers at the lowest cost but can
comprise quality.
d. increases inventory across the supply chain.
ANS: B
45. Which of the following is not included in the SCOR model as one of the five basic components of
supply chain management?
a. plan
b. Source
c. Deliver
d. Receive
ANS: D
46. Which of the following is not a potential benefit of supply chain management?
a. lower costs to the customer
b. reduced inventories
c. reduced customer orders
d. reduced product defects
ANS: C
47. Which of the following is a potential problem with supply chain management initiatives?
a. confused lines of responsibility
b. inaccurate data within the supply chain
c. over-reliance on demand forecasting
d. all of the above
ANS: D
48. Which type of supply chain collaboration techniques includes the vendor obtaining the buyers current
sales, demand, and inventory data in real time and replenishing the buyers inventory?

a.
b.
c.
d.

Continuous Replenishment (CRP) or Vendor Managed Inventory (VMI)

Co-Managed Inventory
Collaborative Forecasting and Replenishment (CFAR)
Collaborative Planning, Forecasting and Replenishment (CPFR)

ANS: A
49. Which type of supply chain collaboration includes the vendor replenishing standard merchandise while
the buyer manages the replenishment of promotion merchandise?
a. Continuous Replenishment (CRP) or Vendor Managed Inventory (VMI)
b. Co-Managed Inventory
c. Collaborative Forecasting and Replenishment (CFAR)
d. Collaborative Planning, Forecasting and Replenishment (CPFR)
ANS: B
50. Which type of supply chain collaboration includes the retailer and the manufacturer forecasting
demand and scheduling production jointly?
a. Continuous Replenishment (CRP) or Vendor Managed Inventory (VMI)
b. Co-Managed Inventory
c. Collaborative Forecasting and Replenishment (CFAR)
d. Collaborative Planning, Forecasting and Replenishment (CPFR)
ANS: C
51. Which type of supply chain collaboration includes collaborative processes across the supply chain
using a set of processes and technology models?
a. Continuous Replenishment (CRP) or Vendor Managed Inventory (VMI)
b. Co-Managed Inventory
c. Collaborative Forecasting and Replenishment (CFAR)
d. Collaborative Planning, Forecasting and Replenishment (CPFR)
ANS: D
COMPLETION
1. As used in the purchasing process chapter, the term ____________________ refers to raw materials,
merchandise, supplies, fixed assets, or intangible assets.
ANS: goods
2. The ____________________ manager usually performs major buying activities as well as performing
the administrative duties of running a department.
ANS: purchasing
3. The ____________________ supervisor is responsible for receiving incoming goods, signing the bill
of lading presented by the carrier, reporting the receipt of goods, and making prompt transfer of goods
to the appropriate warehouse or department.
ANS: receiving
4. In many organizations _____________________________ do the actual buying
ANS: professional buyers

5. Goal ____________________ exists when individual managers' goals are in agreement with overall
organizational objectives.
ANS: congruence
6. The connections between an organization, including the flow of information, materials, and services
from suppliers of raw materials through the organizations customers, are its
______________________________.
ANS: supply chain
7. When data on the inventory record indicate a need to replenish the stock, the inventory system
prepares a(n) ______________________________.
ANS: purchase requisition
8. The purchase requisition is sent from the inventory control department to the ____________________
department.
ANS: purchasing
9. Notification that a PO has been prepared and sent to the vendor is sent to the ___________________ ,
receiving and ______________________________.
ANS: original requestor, accounts payable
10. _________________________ management is the combination of processes and procedures used to
ensure the delivery of goods and services to customers at the lowest cost while providing the highest
value to the customer.
ANS: Supply chain
11. With ______________________________ a vendor obtains a buyers current sales, demand, and
inventory data in real time and replenishes the buyers inventory.
ANS: continuous replenishment (CRP) [Also called vendor managed inventory (VMI) or supplier
managed inventory (SMI)]
12. ____________________________________________________________ features collaborative
processes across the supply chain using a set of processes and technology models.
ANS: Collaborative Planning Forecasting and Replenishment (CPFR)
13. A retailer could misread a demand signal doubling its normal order and the wholesaler could respond
and also double its order resulting in four times the retail order. This is an example of the
______________________________.
ANS: bullwhip effect
14. According to the context diagram for the purchasing process, when a purchase order is sent to the
vendor, the vendor responds by sending the goods along with a ______________________________.

ANS: vendor packing slip

15. ___________________________________ reorders inventory when the item reaches a certain
inventory level that was determined in advance based on the item's sales rate.
ANS: Reorder point (RPO) analysis
16. ________________________________________ is a technique of analyzing all incremental costs
associated with acquiring and carrying particular items of inventory.
ANS: Economic order quantity (EOQ)
17. ______________________________ is a technique for ranking inventory items according to their
relative importance.
ANS: ABC analysis
18. In selecting a vendor, a buyer may need to obtain competitive bids by means of a document called a(n)
______________________________.
ANS: request for quotation (RFQ)
19. A(n) ______________________________ is an external request for the purchase of goods or services
from a vendor.
ANS: purchase order
20. After the ____________________ has been selected, the ____________________ prepares a purchase
order.
ANS: vendor, buyer
21. The electronic purchase order is the basis for a formal contract between the buyer and the seller;
therefore, it should bear a(n) ______________________________.
ANS: digital signature
22. Purchasing personnel use the ______________________________ data to identify potential suppliers
that have been approved for use by the organization.
ANS: vendor master
23. A(n) ____________________ copy of a document is one in which selected data are blanked out so
that persons receiving that copy will not have access to the data.
ANS: blind
24. The business document that accompanies the purchased inventory from the vendor and identifies the
shipment and triggers the inventory receiving process is the
_____________________________________________.
ANS: vendor packing slip

25. The document used to record merchandise receipts is called a(n) ______________________________.
ANS: receiving report
26. Whereas a receiving report normally indicates that goods have been received, some organizations use
a(n) ______________________________ to acknowledge formally the satisfactory completion of a
service contract.
ANS: acceptance report
27. The ________________________________________ is a compilation of open purchase orders that
includes the status of each item on order.
ANS: purchase order master data
28. The __________________________________________________are an event data store with each
record reflecting a receipt of goods and services.
ANS: purchase receipts data
29. A(n) ____________________ system would eliminate documents and forms as the medium for
conducting business transactions.
ANS: paperless
30. The _________________________ is the primary key for the relational table for inventory.
ANS: item number (Item_No)
31. The _________________________ is the primary key for relational table for vendors.
ANS: vendor number (Vend_No)
32. ________________________________ tags identify an instance of an item, not just an item type (e.g.,
this box of Huggies,not any box of Huggies)..
ANS: Radio frequency identification (RFID)
33. An employee has a ___________________________________ when he (she) has a financial interest
(direct or indirect) in a company with which the employer does business.
ANS: conflict of interest
34. ______________________________ allow the vendor to determine that the sender of the message has
the authority to send it and thus prevents an unauthorized purchase.
ANS: Digital signatures
35. The ____________________ process is an interacting structure of people, equipment, methods, and
controls that is designed to accomplish the functions of requirements determination, purchase order
processing, and goods receipt.
ANS: purchasing

36. Purchase requisitions are compiled in a ______________________________ data store.

ANS: purchase requisition
37. ______________________________ are particular Web sites or portals that may be used as sources of
supply in the procurement process.
ANS: B2B marketplaces
38. Management should exercise the control plan ________________________________________ to
ensure that a purchase is within an applicable budget and that the purchase is desirable.
ANS: approve purchase requisitions
39. In preparing a PO, buyers should ___________________________________ to ensure that a purchase
is being made from a suitable vendor.
ANS: use authorized vendor data
40. The control plan __________________________________________________ assumes that there is a
segregation of duties between the personnel who create vendor records and those that create and
approve POs, record accounts payable, and approve payments.
ANS: independent vendor master data maintenance
41. Before executing a purchase, buyers should compare vendors for _______________________,
__________________ and ___________________________________to determine that they have
made an optimal choice for the purchase.
ANS: favorable prices terms, quality, product availability
42. Management should exercise the control plan of ___________________________________ to ensure
that an appropriate supplier has been selected and that the correct goods and services, for the correct
amounts, are being purchased.
ANS: approve purchase orders
43. To prevent duplicate PO requests and to allow the requesting department to ensure that a purchase
order has been created, the purchasing department should
____________________________________________________________.
ANS: confirm purchase orders to requesting departments
44. __________________________________________________ means that before a receipt can be
accepted and recorded, the receipt data should be compared with the PO master data to determine that
an approved PO, prepared by someone other than receiving personnel, is on file.
ANS: Independent authorization to record receipt
45. The receiving department or quality control function should _________________________________
to ensure that the correct goods are received in acceptable condition.
ANS: inspect goods

PROBLEMS
1. Below is a narrative of the Determine Requirements portion (bubble 1.0) of the purchasing process
described in Chapter 12.
Narrative Description
Bubble 1.1 receives and stores the requests received from the inventory-management process
(inventorys purchase requisition) and various departments (purchase requisitiongoods and
services).
At predetermined intervals, bubble 1.2 accesses the accumulated requests held in the purchase
requisition data; sorts the requests, perhaps by vendor or product type; and combines that data with the
inventory master data to determine what purchases need to be made.
Required:
From the DFD (TB Figure 12.1) and the narrative description above, explode bubble 1.0 into a lowerlevel diagram showing the details of that process.

ANS:

2. Below is a narrative of the Order goods and services portion (bubble 2.0) of the purchasing process
described in Chapter 12.
Narrative Description
The first process involves vendor selection (bubble 2.1). A buyer generally consults the vendor master
data to identify potential suppliers that have been approved for use by the organization and then
evaluates each prospective vendor for a particular purchase.
After the vendor has been selected, the buyer prepares a purchase order (PO). Process bubble 2.2 of
depicts the process of preparing a PO. The purchase order data flowing out of process 2.2 is sent to
the vendor. At the same time, the inventory master data is updated to reflect the goods on order. A
record of the purchase is stored on the PO master data, and PO information is distributed to several
departments, including the requesting department, the inventory management process, accounts
payable process, and receiving.
Required:
From the DFD (TB Figure 12.3) and the narrative description above, explode bubble 2.0 into a lowerlevel diagram showing the details of that process.

ANS:

3. Below is a narrative describing the Receive goods and services portion (bubble 3.0) of the
purchasing process described in Chapter 12.
Narrative Description
The vendor packing slip, which accompanies the purchased inventory from the vendor and identifies
the shipment, triggers the receiving process. As indicated by bubble 3.1 of the figure, goods arriving at
the receiving department are inspected and counted, and these data are matched against the vendor
packing slip and the PO receiving notification (i.e., the blind copy of the PO). Nonconforming
goods are denoted by the reject stub out of process 3.1. Notation of rejected goods is added to the
vendor service record in the vendor master data. After the count and condition of the goods has been
obtained, process 3.1 completes the receiving report by noting the quantity received. Once annotated
with the quantity received, the PO receiving notification becomes a receiving report, which is the
document used to record merchandise receipts.
Process 3.2 compares the receiving report data to the information stored in the PO master dataa
process that often is automatically completed by the information system. Bubble 3.2 also reflects the
following activities:
Data about vendor compliance with the order terms are added to the vendor service record on the
vendor master data.
The receiving report data is stored as a copy of the receiving report document or electronically.
Receiving report data is sent to the accounts payable process.
A copy of the receiving report is sent to the warehouse (i.e., Stock notice) with the goods.
The inventory master data are updated to reflect the additional inventory on hand.
The cost of the inventory received is relayed to the general ledger process (see the data flow GL
inventory received update).
Finally, the PO master data are updated to reflect the receipt of the goods.
Required:
From the DFD (TB Figure 12.5) and the narrative description above, explode bubble 3.0 into a lowerlevel diagram showing the details of that process.

ANS:

NOTE TO INSTRUCTORS: The following is a repeat of Problem 3 that asks students to identify the
missing pieces instead of drawing the Diagram.

4. Below is a narrative describing the Receive goods and services portion (bubble 3.0) of the
purchasing process described in Chapter 12.
Narrative Description
The vendor packing slip, which accompanies the purchased inventory from the vendor and identifies
the shipment, triggers the receiving process. As indicated by bubble 3.1 of the figure, goods arriving at
the receiving department are inspected and counted, and these data are matched against the vendor
packing slip and the PO receiving notification (i.e., the blind copy of the PO). Nonconforming
goods are denoted by the reject stub out of process 3.1. Notation of rejected goods is added to the
vendor service record in the vendor master data. After the count and condition of the goods has been
obtained, process 3.1 completes the receiving report by noting the quantity received. Once annotated
with the quantity received, the PO receiving notification becomes a receiving report, which is the
document used to record merchandise receipts.
Process 3.2 compares the receiving report data to the information stored in the PO master dataa
process that often is automatically completed by the information system. Bubble 3.2 also reflects the
following activities:
Data about vendor compliance with the order terms are added to the vendor service record on the
vendor master data.
The receiving report data is stored as a copy of the receiving report document or electronically.
Receiving report data is sent to the accounts payable process.
A copy of the receiving report is sent to the warehouse (i.e., Stock notice) with the goods.
The inventory master data are updated to reflect the additional inventory on hand.
The cost of the inventory received is relayed to the general ledger process (see the data flow GL
inventory received update).
Finally, the PO master data are updated to reflect the receipt of the goods.
Required:
From the DFD (TB Figure 12.7) and the narrative description above, explode bubble 3.0 into a lowerlevel diagram showing the details of that process by identifying the words that belong in items 1. to 15.
(TB Figure 12.8).

ANS:

1.
2.
3.
4.
5.
6.
7.
8.

Vendor master data

PO receiving notification
Vendor packing slip
Purchase order master data
GL inventory received update
Purchase receipts data
3.1 Inspect and count goods
Receiving report

9. 3.2 Compare receiving report and purchase order

10. Receiving report
11. Stock notice
12. Reject
13. Reject
14. Vendor master data
15. Inventory master data

5. TB Figure12.9 is the control matrix for the purchasing process presented in Chapter 12 with certain
items omitted. In the matrix, each omission is indicated by a square. Jumbled lists of the omitted items
are as follows:
Omitted from Control Goals Columns
1.
Inventory and vendor and purchase order master data
2.
Ensure security of resources
3.
Vendor packing slip inputs
4.
Purchase order and inventory master data
5.
Purchase order inputs (i.e., requisitions)
6.
Ensure effectiveness of operations
7.
Ensure efficient employment of resources (i.e., people, computers)
8.
Inventory master data
Omitted Control Plans
9.
Approve purchase order
10. Use authorized vendor data
11. Compare vendors for favorable price, terms, quality and product availability
12. Automated data entry
13. Independent authorization to record receipt
14. Approve purchase requisition
15. Count goods and compare to vendor packing slip
Required:
Complete TB Figure 12.9 by replacing one of the numbers, 1 through 15 from the above lists, for each
square showing a missing item.

ANS:

6. The following is a list of 12 control plans.

Control Plans
A.
B.

Populate input screens with master data

Programmed edit checks

G.
H.

C.
D.
E.

Approve purchase requisitions

Requisition audit data
Use authorized vendor data

I.
J.
K.

Approve purchase orders

Confirm purchase order to requesting
department
Digital signatures
Enter receipt data in receiving department
Independent authorization to record
receipt

F.

Compare vendors for prices, terms,

L.
Inspect goods
quality, and product availability
Required:
Listed below are 10 system failures that indicate weaknesses in control. On the answer line to the left
of each description, insert the capital letter (from the list above) of the best control plan to address the
system deficiency described. A letter should be used only once. Two letters will not be used.
SYSTEM FAILURES
_____
_____

1.
2.

_____

3.

_____

4.

_____

5.

_____

6.

_____

7.

_____

8.

_____

9.

_____
ANS:

10.

System
Failure
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Ordered goods are often of a different quality and price than expected.
Data on the RFID tags are not compared to the existing purchase order to
ensure that we have received the goods that we ordered.
Purchase orders are sometimes prepared on the basis of purchase requisitions
from departments with no budget to pay for the ordered goods.
The computer does not automatically identify erroneous or suspect data on
purchase orders before they are printed for signing and mailing.
Inventory is being discarded or sold at a reduced price due to damage or
quality issues.
Bill the buyer often prepares purchase orders for vendors owned by his
relatives.
Clerks in the purchasing department enter purchase order data from forms
given to them by the buyers. They spend a considerable amount of time
typing in the vendor name and address, and item descriptions and prices.
The vendor has no way of knowing if the electronic purchase order was sent
by authorized personnel of the buyer.
The purchasing manager has not informed the requisitioning department in a
timely manner to let them know that their requests were processed.
Certain vendors have been favored in the selection process.

Answer
F
K
C
B
L
E
A
I
H
G

7. TB Figure 12.11 is a partial flowchart for the purchasing process. There are selected symbols that must
be filled in to complete the flowchart. Fill in the items with missing labels using a letter from A to J.
A. Approve PO
B. Enterprise database
C. Enter requisition data
D. Exception routine not shown
E. Requisition approval screen
F. Approve requisition
G. PO input screen
H. Requisition screen with vendor candidates

I. Edit input and record PO

J. Edit input and record requisition

ANS: